Tuesday, 24 August 2010

With some much talk (and hype) surrounding NFC and Mobile payments, it looks quite possible that m-payments will enter mainstream in the Western world in the forthcoming year. Though mobile payments have become norm in developing countries like Kenya, Senegal and India, its yet to catch on in UK and the USA.

The mobile transaction market is so huge it offers room for multiple players. Yearly worldwide electronic transactions total $7-$10 TRILLION

Competitors are generally local to each country or region leaving plenty of open territory for mobile payment service and technology companies. Companies that win in their markets will be those that understand customer needs.

PayPal in the U.S., which has traditionally catered to merchant accounts, most likely will adopt a similar mobile strategy. (Both Obopay and PayPal are service providers–not technology companies like Fundamo in South Africa that provides software solutions for service companies.)

“The competition is cash”–not the other players in this market space

In five to ten years, mobile payments will achieve high adoption among consumers in developing and developed countries.

Some forms of mobile payments already exist. Phone applications like PayPal Mobile support person-to-person (P2P) payments. SMS-based transactions are used for car parking tickets and mobile commerce allows online shopping through mobile phone browsers. Contactless cards are also in circulation for credit cards, transport tickets and are used in some food stores. The industry is looking next at near-field communication (NFC) mobile handsets. NFC allows 'tap-and-go' style payments using mobile phones at in-store terminals by incorporating contactless card technology into handsets. Alternatively, micro-SD cards with NFC-enabled chips can be inserted into mobile phones.

The Global System for Mobile Association (GSMA) has launched a Pay-Buy-Mobile project to enable consumers to pay for goods and services via their mobile phones. "By storing a consumer's credit or debit card within the SIM card and employing NFC technology, the mobile phone can be passed near a contactless Point Of Sale (POS) terminal to complete transactions," said Nav Bains, GSMA's senior director of mobile money.GSMA has been collaborating with standardisation bodies; the European Payments Council, EMVCo, which manages card specifications and smartcard infrastructure standards body, Global Platform. The consortium is developing the Trusted Service Manager requirements document and a certification process to accelerate the commercialisation of mobile NFC services. But some experts believe NFC is a long way from a mass market roll-out in the UK. The biggest breakthrough in the mobile payment market have been in developing countries, providing bank services via mobile phones for people who have traditionally not had bank accounts. Visa Europe recently launched Europe's first micro-SD based mobile payment systems in Turkey. But it is unclear when such a system will be introduced in the UK. says Juniper Research senior analyst, Howard Wilcox.The number of contactless terminals in the UK is approximately 26,500 and the UK Card Association predict 14 million contactless cards will have been issued with contactless functionality by the end of 2010. "We're not expecting to give a launch date any time soon," continues Swain. "Globally, there's a lot of discussion but the UK is one of the only areas where we already have the infrastructure that would accept contactless mobile payments," he adds.UK-based mobile banking firm, Monitise, has also recently launched a joint venture with Visa in India to accelerate the delivery of mobile financial services such as banking, bill payments, mass transit ticketing and mobile top-up to Indian customers. More than infrastructure, Monitise group strategy director, Richard Johnson, believes banks and mobile network operators need to work together. "Banks are where most people keep their money. It's about mobilising bank accounts rather than creating new accounts with network operators. Tap-and-go really requires collaboration," he says.

Gerhard Romen, Mobey Forum marketing chair and director of mobile financial services at Nokia, believes the NFC trials have proved the consumer demand and, by 2011, all of Nokia's new smartphones will be NFC-enabled. "Once people work together, it'll provide simplicity for the user" he says. "A phone with NFC can do more than just behave like a card - it has a display, keyboard and internet connection - and becomes more interactive," he adds.

Today we have credit, debit and, perhaps, contactless cards. Tomorrow banks and mobile network operators hope to provide a mobile wallet. The next step will be introducing tap-and-go into the mainstream market and, despite slow progress, industry experts are increasingly certain it will happen "soon".

Google and Apple are both making moves to ensure smooth financial transactions on their mobile platforms.

Last week news bubbled up that Google and PayPal were brokering a deal to let the search engine use the e-commerce service as a payment option for applications purchased through Google's Android Market.

Apple, meanwhile, hired an expert in near field communication (NFC) technology as its new product manager for mobile commerce and has published a number of NFC-related patents in recent months.

Google's e-commerce infrastructure is poor compared with that of Apple. Users may only purchase applications for their Android smartphones from the Android Market in 13 countries.

By way of comparison, consumers may purchase apps from iPhone's App Store in 90 countries all over the world. PayPal would be a welcome addition to Google Checkout and credit cards as payment options in the Android Market.Gartner has said the market for mobile apps will be $6.2 billion this year, making it an obvious sector for Google and Apple to attack with gusto.

Bay Area businesses like Bling Nation and eBay Inc.'s PayPal division are rolling out products that allow people to hand over money to stores, restaurants, coffee shops or friends with the tap of a mobile device. No credit cards, checks or cash are necessary.

Meanwhile, reports suggest that other major companies, including Apple Inc., AT&T Inc. and Verizon Wireless are planning or negotiating to provide similar services.

"What I see is all these distinct initiatives coming together and merging at some point in the not-too-distant future," said Aaron McPherson, practice director at IDC Financial Insights. "All together, they add up to significant change."

Bling Nation, a Palo Alto startup founded in 2007, is among the furthest along in this emerging field, with more than 1,000 retailers nationwide accepting its payment system. The company provides so-called Bling tags, or small stickers, that affix to the back of a mobile phone and transmit data using a wireless standard known as Near Field Communication.

When users tap the tag on a proprietary reader at participating retailers, it pulls money from their PayPal account. For security, users have to enter a personal identification number for purchases over a certain amount, or when transactions occur at an unusual frequency or location. Merchants pay for or rent the reader and are charged 1.5 percent of the total of every transaction, which is well below the average transaction rate for accepting credit cards. The additional advantage for merchants is that they can analyze customer data in a more fine-grained manner than is permitted through the credit card system. This allows them, for instance, to target sales offers to regular customers or those who haven't been into the shop in a while.

"They enjoy cheaper fees and analytics that can help them issue coupons and make more money," said co-founder Meyer Malka, adding that the advantages are turning businesses into proselytizers on Bling's behalf.

A little more than a month ago, the company began an aggressive push in partnership with PayPal to expand its footprint in downtown Palo Alto. It included giving away thousands of tags preloaded with $20 in credit to customers. There are now more than 50 retailers in the city accepting the payments.

As I mentioned last week, with heavyweights like Nokia, Apple and Google all coming closer to NFC and M-Payments, it should be a winning formula for the end consumers. We will possibly see more use of m-payments in the developed world. Lets not mention about security just yet.